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Google's First Slip

What's the common denominator between the leaders in online search and online movie rentals? One speed bump. You'll see what I mean.

Lose something every day. Accept the flusterof lost door keys, the hour badly spent.The art of losing isn't hard to master.-- From "One Art" by Elizabeth Bishop, in honor of the 24th annual National Poetry Month.

Come on, Google(NASDAQ:GOOG)! You can do a lot worse!

I was hoping for a really bad showing from the search giant last night. This recession, too, shall pass -- and it would have been sweet to see Google's shares swoon on the heels of short-term pains while the long-term future remained as bright as ever. Instead, Google pulled out a surprisingly healthy first quarter. Thanks a lot, dude.

Okay, so I shouldn't really complain that a company I own and respect is doing well. Net revenue (gross sales minus traffic acquisition costs) came in at $4.07 billion, up from $3.7 billion a year ago. GAAP earnings jumped 9% year over year to $4.49 per diluted share. And free cash flows more than doubled to a cool $2 billion.

Paid clicks ticked up 3% over last quarter and 17% over the year-ago period. Higher volume and lower revenue in an auction-style system like AdWords make me think that the model is still working and driving new traffic to Google, but advertisers are scaling back their marketing budgets. I don't know how long this downturn will last, but I can say with certainty that it will end.

However, net revenue came in lower than last quarter's $4.2 billion, and that has never happened to Google before. I see parallels -- albeit on a much larger scale -- to the bump in the road that Netflix(NASDAQ:NFLX) saw two years ago. Under all-out assault from Blockbuster's (NYSE:BBI) Total Access program, Netflix saw its first sequential subscriber shrinkage, and the stock fell like a wounded swan. But the business was still fundamentally healthy; Blockbuster couldn't afford to keep the pressure on, and Netflix returned to healthy growth. Few businesses -- or stocks -- have looked as good in recent memory.

Google's temporary nemesis is a weak economy rather than rivals like Yahoo!(NASDAQ:YHOO), Microsoft(NASDAQ:MSFT), or Interactive Corp's (NASDAQ:IACI) Ask.com. This company is chasing paid clicks, not subscribers (well, and sort-of subscribers to some degree). But like Netflix, Google will laugh off this speed bump in years to come.